Deciding to sell your Amazon FBA business may have been a long, deliberative process, or it could have come easy -- maybe you’ve even decided the time isn’t quite right. Whatever the case, it’s only the first step in getting rewarded for all of your hard work growing the company. And the best way to make sure you’re properly compensated for your efforts is to make sure your FBA finances are in order.
Good accounting practices will help make sure you get what you’ve earned. Prospective buyers will want to see relevant, accurate financial information. Not only is it important to have the numbers in order, it’s crucial that you know what those numbers mean. Knowing your company’s value is an absolute must if you’re going to get what you’ve worked for.
How To Get Your FBA Finances Organized
Accounting as an Amazon seller can be particularly challenging. Not everything is streamlined or centralized, and you’re working within another company’s infrastructure. Amazon has complex fees that depend on several factors, such as storage fees based on product size. It also lacks a built-in Cost-of-Goods-Sold (COGS) metric, leaving you to calculate profitability yourself. This could mean a lot of extra work before you’re ready to make a sale.
However, these complications shouldn’t stop you from getting financially organized. Here are three tips to get your finances in order quickly.
1. Maintain Up-to-Date Bookkeeping
There are more tools than ever before that allow a business owner to stay on top of their finances. With the help of third-party software/services and courses, basic bookkeeping can be kept in-house, saving money while still getting the benefits of organized financial information. Of course, this only works if those numbers are updated regularly and consistently. If it proves to be too much to do on your own, you may need to get outside help, but it could well be worth the extra cost.
However it’s done, bookkeeping provides valuable information, not only at tax time, but also for our next tip...
2. Incorporate Managerial Accounting
The data is only as good as its implementation, and that’s where managerial accounting comes in. Many accounting software systems are designed primarily for financial accounting, meant to report to shareholders, lenders, and the IRS. Managerial accounting is instead designed to provide actionable information to help you run your business.
This information is then used to make internal business decisions based on analysis, measurement, and interpretation of financial data. From there, steps can be taken to further grow the business, and when it comes time to sell, managerial accounting can be used to help you understand the value of your business, allowing you to negotiate with greater leverage.
Lastly, what’s equally important from an accounting management standpoint is to administer accrual-based accounting vs. cash-based accounting. Cash-based accounting is when sales and expenses are recorded as they are received or spent. Accrual-based accounting is when sales and expenses are recorded as they are incurred. Generally speaking, accrual accounting makes it easier to understand the intricacies of eCommerce businesses (from both a revenue & cost perspective) in a way that allows for easier and faster review for any prospective buyer, limiting the amount of work on your end when it’s time to sell.
3. Track Core Unit Economic KPIs
Of course, all of that data and analysis is still contingent on where you are in the lifecycle of your business. But staying on top of that lifecycle is just as important as the rest of your financial information. Some key core unit economics that are helpful to track include: tracking sales by ASIN (Amazon Standard Identification Number), ACoS (Advertising Cost of Sales), FBA Fees, Unit Landed Cost, and Profit per ASIN. All are critical to understanding the ins and outs of your business on a month-by-month and year-by-year basis. Tools such as Sellerboard or Seller Legend make it easy to both document and track some of these major KPIs, which provides additional insight into the health of your business -- insight you can then take into a negotiation or just general management of your business.
The Bottom Line
It’s hard to grow your business without knowing its value -- and it’s even harder to sell it. Getting on top of your finances as soon as possible will help you do both. And when the day comes that you find yourself at the negotiating table, you’ll be in the strongest possible position. If you’re ready to take that next step, contact us to learn more about selling your FBA business.